Tuesday, November 29, 2011
What a cruel and ugly joke
There are seven countries that are in deep dodo debt wise. Iceland has managed to somewhat stem the tide from what I'm hearing but the rest are fiddling while Rome burns. As I reported earlier it's really nothing that average Joes have done but the continuation of the grand theft of world wealth. Those at the top of this dung heap have managed to game the system to their advantage. A simple strategy of moving wealth off shore then lower taxes to the top 1%. Tax cuts for average Joe amounted to a couple of lattes a week so it had little effect on him. But to those at the top it meant millions and at the same time sucked billions out of the support system. So what's going on right now? You will note that the markets were up by several hundred points today. That was on the news that Europe would somehow bail out the ailing nations set to default. The process isn't as easy as one might think however for in setting up the Euro zone (those countries that use a common currency) no body thought about the consequences should one country default. They may have a common currency but their way of dealing with fiscal responsibilities is sovereign. No one wants to be the ones bailing anyone out for fear of doing damage to their own healthy economy. They could crank up the money presses and merely print what they need but that might result in the hyperinflation that was seen in 1920s Germany (as in bring your wheel barrow full of loot to buy a loaf of bread).
What to do? What to do? The single minded one percent (and I use that term to mean world wide) will sit and wait letting the anxiety build. Fear forces normally rational people to do irrational things. You will note that Italy tried to sell treasury bonds with few takers. That forced interest rates higher causing them to buy back the offering. Now there was the big, although not finalized bail out deal that Germany and France are mulling over. A slight problem there. They don't have the authority to put any strings to any such offering. They can not issue a single bond because there was never an agreement when the European Union was formed to be able to do so. Greece as we have seen has instituted austerity and massive taxes. That is something that will kill their economy. We saw that in past history.
So what's going on you might ask? Stock prices seem to be going up by a couple hundred points in the last few days. That is a diversion. The news was that Germany and France had reached some kind of deal but I can tell you that they didn't or should I say couldn't. That prompted the large institutional investors to buy thinking something was resolved. But the banks and investment houses know better. I'd bet that they just forked over a good chunk of change buying hedges against a market crash. That's something very likely to happen in the next 10 days to two weeks. Everybody wants to kick the can down the road but they are running out of road. Eventually payments on debt must be made. It will be interesting though to see who has the money to cover those hedges. We saw what happened the last time this happened. That was 2008 when everything froze up. This time it will be far worse with entire countries going down the toilet. Can't keep selling promises and leveraging everything without consequences.
And a hat tip to Jim for the illustration - a soon to be proper use of our currency